Banks have made dramatic changes to risk management in the past decade—and the pace of change shows no signs of slowing. Here are six initiatives to help them stay ahead.
Risk management in banking has been transformed over the past decade, largely in response to regulations that emerged from the global financial crisis and the fines levied in its wake. But important trends are afoot that suggest risk management will experience even more sweeping change in the next decade.
The change expected in the risk function’s operating model illustrates the magnitude of what lies ahead. Today, about 50 percent of the function’s staff are dedicated to risk-related operational processes such as credit administration, while 15 percent work in analytics. McKinsey research suggests that by 2025, these numbers will be closer to 25 and 40 percent, respectively.
No one can draw a blueprint of what a bank’s risk function will look like in 2025—or predict all forthcoming disruptions, be they technological advances, macroeconomic shocks, or banking scandals. But the fundamental trends do permit a broad sketch of what will be required of the risk function of the future. The trends furthermore suggest that banks can take some initiatives now to deliver short-term results while preparing for the coming changes. By acting now, banks will help risk functions avoid being overwhelmed by the new demands.